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Year 2006 and Future Years Tax Planning Opportunities (Subject
to Change - Updated 11/01/06)
I. Individual Tax Planning Opportunities:
1. Take advantage of new Federal income tax reductions and depreciation rules. 2. Defer or accelerate income and/or expenses to best fit your tax situation. 3. Bunch itemized deductions in any one year to overcome limits and maximize deductions. 4. Convert student loans and/or consumer debt to home mortgage debt to make interest fully tax deductible. In certain cases student loan interest may be partially or fully deductible even without itemizing deductions. 5. You can rent out your home and/or vacation home 14 days or less per year and are entitled to offset your income with property expenses. 6. You can sell your residence without paying tax on a gain for a gain up to $500,000 if married or $250,000 if single. 7. Planning income of children under age 18: (1) Keep unearned income below $1,700. Income over that amount is taxed at the parents highest rate. (2) Buy tax exempt or tax deferred or low paying dividend growth stock investments to defer income until the child is age 18. (3) Gift appreciated property and/or transfer income to children over age 17 if they pay tax at a lower rate. Consider college financial assistance rules before making significant gifts to your children. 8. Hire your children for your family business. Be alert for required payroll tax reporting including workmen's compensation coverage. 9. Consider taking or deferring capital gains and/or losses depending on your tax status. Take advantage of new Federal reduced long term capital gains tax rates. 10. If you are selling investment or business real estate consider a tax free exchange to defer any gain. 11. Consider tax free bond investments. Federal bonds and treasury bills are tax free to Oregon. Qualified Oregon municipal bonds are tax free Federal and Oregon. Qualified municipal bonds of other states are tax free to Federal. 12. If you owe year 2006 state taxes and itemize your deductions, consider paying them prior to 12/31/06 to receive a year 2006 Federal itemized deduction and reduce year 2006 Federal tax. If you are subject to the alternative minimum tax for year 2006 there are no tax savings from paying state income tax in advance. 13. Properly plan and document business car expenses to maximize the tax benefit. 14. Carefully plan retirement plan distributions. Consider tax free rollover of premature retirement distributions. 15. Offset passive activity income with prior year loss carryovers and/or current year losses. 16. Be alert to avoid alternative minimum tax where possible. 17. Consider a regular or Roth IRA contribution, either tax deductible or not tax deductible. 18. Consider selling property on the installment basis or using a purchase option to defer sale. 19. Consider filing married filing separate. 20. Make maximum contributions to your 401(k), tax sheltered annuities or similar plans. 21. Consider increased charitable contributions and timing contributions for maximum benefit. Consider donating through a Charitable Remainder Trust or Annuity. 22. Consider college education planning to maximize nontaxable income, maximize tax credits or maximize nontaxable financial aid. 23. In
2006 and 2007 there will be a residential energy efficient property credit
for certain energy efficient property.
II. Business Tax Planning Opportunities:
1. Take advantage of new Federal tax reductions and depreciation rules. 2. Small corporations are eligible to use a simplified LIFO inventory method to defer tax on inflation in inventory. 3. You can expense up to $108,000 of equipment purchases for 2006 year subject to certain limitations. 4. Consider leasing fixed assets to avoid alternative minimum tax adjustments, etc. 5. Review independent contractors to verify they qualify for that status. The IRS has been targeting this area in recent audits. 6. Defer or accelerate year 2006 income depending upon your tax status and predictions about future tax rates. Watch for tax bracket changes at various levels. 7. Accelerate expenses into year 2006 or defer them to year 2007 depending upon your tax status and predictions about future tax rates. 8. Consider year end salary and bonus adjustments. 9 Have an accountable plan so employee travel and entertainment reimbursements avoid tax problems for the employer and employee. 10. Monitor compliance with passive activity regulations to qualify as a materially participating partner or S Corporation shareholder. 11. Review alternatives for reducing real and personal property tax costs. 12. Review alternatives for reducing state income taxes. 13. Consider maximum retirement plan contributions. 14. Consider setting up a SIMPLE (Savings Incentive Match Plan for Employees) Retirement Plan. 15. Consider setting up and funding health savings accounts for yourself and your employees. HSA’s can only be used with qualified high deductible medical insurance plans. III. Estate Tax Planning Opportunities:
1. Review and update your estate plan, wills, trusts, power of attorney, Oregon Healthcare forms, etc. 2. Consider use of a trust or joint ownership to avoid probate. 3. Consider splitting your estate to maximize use of the unified credit. For 2006 the Federal Unified Credit is $2,000,000 exclusion for you and your spouse for a total of $4,000,000 if your estate is properly organized. Oregon’s limitation is $1,000,000 each for 2006. 4. Review life insurance policies, ownership, values, beneficiaries, etc. Consider use of an irrevocable life insurance trust. 5. Consider charitable bequests and trust. 6. Consider a gifting program. Make maximum annual gifts of $12,000 per person to reduce your estate. 7. Consider a grantor retained income trust as part of your gifting program. 8. Consider non-tax objectives and consequences of your estate plan. 9. Review your estate tax plan in light of recent Oregon Inheritance Tax developments.
Guyer, Lindley, Bailey &
Martin |
